Offshore Trusts: Types and Uses (2 of 3)

This series considers the key elements of Offshore Trusts, particularly Isle of Man Trusts. This is the second of three articles, which examines some of the most common types of Offshore Trusts and their uses. If you would like to read the other articles in the series you can find them here:

From protecting family legacies, to ensuring proper succession planning, providing for dependents or even employees, the Offshore Trust is still an extremely flexible tool at the advisers’ disposal – hopefully the following article will help illustrate this point.

Article 2 of 3, Offshore Trusts: Types and Uses will explore the following:

Offshore Discretionary Trusts

The Discretionary Trust is one of the most commonly used types of Trust and can provide maximum flexibility for the Settlor and Trustees in terms of how the Trust achieves the desired objectives.

For instance, a Discretionary Trust can provide the Trustees with the ability to make distributions in a way that avoids wasting or depleting the Trust Fund unnecessarily and in line with changing circumstances – this can be for many reasons, including the protection of vulnerable Beneficiaries, tax planning or even asset protection with regards to Beneficiaries personal liabilities, and more.

Additionally, whilst a class of Beneficiaries may be apparent, the Settlor may not know what the best way of dividing the fund will be and may wish to allow for future changes in circumstances and even additional beneficiaries to be considered – for example, unborn grandchildren.

Discretionary Trusts can be formed during the Settlor’s lifetime, either as a living settlement or written into their Will, coming into existence upon death. If created as a living Trust, the Settlor may be liable to taxation on the chargeable transfer value. Furthermore, the Trustees may also be liable to a periodic liability on 10 year anniversaries, and on any distributions to Beneficiaries. For this reason, tax advice should be sought at the outset in respect of the circumstances of the Settlor and Trustees.

The Settlor must not retain any beneficial interest in possession or control over the assets settled into the Discretionary Trust, otherwise the Trust may be considered a sham or voidable, and the assets may still form part of the Settlor’s estate.

Instead, the Trustees are empowered to administer the Trust Fund in the interests of the Beneficiaries and the Trust itself. The Trustees are also able to make distributions at their discretion, to any beneficiary at a time they deem appropriate. Whilst the Discretionary Trust provides Trustees with complete control over the arrangement, their actions must still be compliant with the Trust Deed.

The provisions of the Trust Deed can provide for restrictions that the Settlor wishes to put in place. In addition, the Settlor may elect to appoint a Protector, who is usually a trusted professional adviser, to oversee the Trustees and ensure compliance with the Trust provisions. The Protector retains certain powers as desirable, to make sure that the Trustees achieve the objectives of the Trust in congruence with the Trust Deed. Whilst the inclusion of the Protector can provide controls, it is important to not restrict the Trustees so as to erode the effectiveness of the Discretionary Trust.

Finally, the Settlor can guide the Trustees by providing a Letter of Wishes. The Letter of Wishes provides a statement of the Settlor’s intentions at that point in time, allowing the Trustees to take this into consideration when making decisions and distributions. So long as the Letter of Wishes is regularly reviewed, it can provide fantastic insight into the Settlor’s mind as circumstances change – albeit, this document is persuasive and not binding; it creates no legal obligation on the part of the Trustees.

The Discretionary Trust is a very attractive solution that delivers maximum flexibility and gives the potential to remove tax liability from the Settlor’s estate – although this flexibility comes at a price. Discretionary Trusts can be complex, requiring specialist knowledge to avoid pitfalls – the Settlor needs to understand that they are placing their assets under the control of their chosen Trustees, who must act bona fide in line with the Trust Deed, but not necessarily in line with their wishes – so long as they consider it is in the best interests of the Trust and Beneficiaries.  

Offshore Interest in Possession Trusts

Less common, but still widely used, is the Interest in Possession Trust. This type of Trust can have a myriad of uses, all of which hinge on this instrument’s ability to provide the Settlor with access to the Trust Fund during their lifetime – in fact, sometimes this type of Trust is called a Lifetime Possession Trust.

The interest in possession can either be for a fixed period of time or indefinite. It is very common for provision to be made for the remainder of the Settlor’s lifetime.

In an interest in possession arrangement, the Settlor places the assets into Trust, thus transferring legal title to the Trustees (as per every Trust arrangement) – but here the settlor carves out an interest in possession, giving themselves an immediate and automatic right to the income flowing from the Trust assets.

Sometimes the Settlor of an Interest in Possession Trust is referred to as an Income Beneficiary or a Life Tenant, because of this legal right. The carveout can provide the Settlor with rights to enjoy the assets and/or all income generated from the assets during their lifetime. For example, to live in a property, pay living expenses or pay for long term care etc. from the gains of investments or other assets such as dividends from shares in a family business.

There can be more than one Income Beneficiary or Life Tenant, who will not typically have any beneficial right to the settled assets themselves, such as a spouse. In the case of income payments, this is paid to them periodically as set out in the Trust Deed.

The income received will be less the expenses of the Trust – it is important to remember that this will include any costs of administering the assets (custodian fees, investment adviser fees, property management etc.) along with potential remuneration of Trustees, which so long as fair is allowable under Trust Law.

When making investments decisions, Trustees will have a duty to both the Income Beneficiary / Life Tenant and the Beneficiaries who are entitled to the assets, making such decisions by considering the competing needs of income and longevity, unless otherwise stated in the Trust Deed.

As per the Discretionary Trust, the Trust assets will be held by the Trustees for the benefit of the named classes of beneficiaries or named individual Beneficiaries contained within the Trust Deed. These Beneficiaries can benefit after the set period that the Income Beneficiary or Life Tenant can enjoy the interest in possession – this is normally after death.

There are tax implications for the implementation of this type of Trust, and as ever, it can be quite complex. Therefore, tax advice should be sought in all cases.

Offshore Accumulation and Maintenance Trusts

Accumulation and Maintenance Trusts are somewhat of a hybrid approach between a Discretionary Trust and a Bare Trust. At its core, this type of trust places the Trust Fund under the care of the Trustees until a child or young Beneficiary reaches a specified age, up to 25 years.

For the intervening period, the Trustees will have discretion over the administration of the settled assets and how best to use them for the benefit of the Beneficiary – of course in compliance with the provisions of the Trust Deed. Broadly the Trustees may accumulate the income and gains to build the Beneficiaries capital entitlement or can apportion elements for the ongoing maintenance of the Beneficiary.

Prior to the Finance Act 2006 changes to the treatment of Accumulation and Maintenance Trusts, these Trust arrangements were set up to achieve certain IHT planning benefits – however, in the modern day, and due to the changes in the Relevant Property Regime (RPR), this benefit has now been removed. Accumulation and Maintenance Trusts will need to consider the RPR, which can result in periodic 10 year anniversary charges, as per Discretionary Trusts discussed above.

For those Accumulation and Maintenance Trusts settled pre-2006, there was a window until the 5th of April 2008, whereby the age of majority could be increased from 18 to the maximum of 25 years. These Trusts will continue to receive the same pre-2006 IHT treatment for the lifetime of the Trust i.e. before the Beneficiary reaches the age of majority. However, it is important to note that any additional settlements post-2006 will render the trust subject to the RPR changes. Furthermore, if there is no absolute interest in the trust i.e. it is a Discretionary Accumulation and Maintenance Trust, and the age of majority was not amended before 6th April 2008, the RPR changes and periodic charges will be applicable.

Before maturity, whilst the Trustees can elect to roll up the income and growth of the Trust assets, they can also defer or even reallocate them depending on the Trust Instrument. This can only be actioned before the Beneficiary gains an interest in possession at age 18 or 25 as per the trust terms.

If done so bona fide and in line with the Trust Deed, the Trustees could invest the Trust Fund into certain specific fixed form assets before the Beneficiary’s 18th birthday e.g. real estate, bonds, fixed term deposits etc. This means that the value could be released in tranches over time or produce ongoing income via maturing investments, rent etc. in turn avoiding wasteful behaviour and allowing the Beneficiary to mature beyond the age of Majority.

In summary, Settlors may feel more comfortable establishing an Accumulation and Maintenance Trust, rather than a full Discretionary Trust – this is because the Trustees will have the flexibility of administration during the Trusts lifetime, whilst the Beneficiaries’ position can be fixed. However, the drawback is that the child Beneficiary will have an automatic right to the Trust Fund at the age of majority, which might be considered detrimental depending on their character and level of maturity.

Other Forms of Offshore Trust

In addition to the above, it is worth noting some other commonly used types of Trust. For brevity these have been listed below with a short description:

  • Purpose Trust – Rather than being set up for the benefit of an individual Beneficiary, the Object of a Purpose Trust is to achieve a specified commercial or charitable objective e.g. financing transactions, acquisition or disposal of property etc. On the Isle of Man, there is a dedicated piece of legislation that caters for this Trust – Purpose Trusts Act 1996.
  • Employee Benefit Trust (EBT) – Employee Benefit Trusts are created by employers for the benefit of past, present or future employees, dependants and relations. They can be a vehicle for conveying any number of benefits, and useful for companies of any size – especially those that have a global footprint. Common uses include operating share purchase schemes, discretionary bonuses, pensions etc.

There are of course many more Trusts available, and we would recommend speaking with your professional adviser to assist with choosing the right type of Trust for meeting your objectives.

Working with Dixcart

Dixcart has been providing Trustee Services and guidance on Offshore Trusts for over 50 years; assisting clients and their advisers conduct their offshore planning.

We have in-house experts with a wealth of experience in all matters relating to Trusts; this means we are well placed to support and take responsibility for any Offshore Trust, acting as Trustee and providing specialist consultancy services where appropriate. You can read more about our Trust services here in this helpful guide.

Due to our diverse offering, which includes an array of Isle of Man structures, we can assist From pre-establishment planning and advice to the day-to-day management of the vehicle and troubleshooting issues. We can support your goals at every stage.

Get in touch

If you require further information regarding the use of Offshore Trusts, or Isle of Man structures, please feel free to get in touch with Steve Doyle at Dixcart:

advice.iom@dixcart.com

Alternatively, you can connect with Steve on LinkedIn

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.

What’s the Interest in Investing into Africa?

Introduction

The fiduciary world expends much effort and resources in establishing suitable structures for the migration of wealth out of Africa, particularly South Africa.  However, little thought is given to the vast opportunities for inward investment into the African continent itself, investment that will also require structures.

Over the past few years Dixcart has seen a steady stream of enquiries for structuring investments into the African Continent for family offices, Private Equity (PE) Houses and groups of mutual interest investors.  Structures are usually bespoke and often feature an ESG (environment, social and governance) investment strategy. Both corporate and fund vehicles are typically used with Private Investment Funds (PIFs) the favoured fund route.

What has been particularly interesting is the high number of acquisitions or investments targeted at the sub-Saharan region ranging from process and production facilities, mining and mineral exploration, through to infrastructure projects such as renewable energy and water.

Whilst these investment structures are applicable to investments around the world the question is what is it that attracts investors to the African Continent and why use Guernsey structures for inward investment?

The African Continent

The big opportunity is the fact that the African continent is one of the final frontiers as other emerging markets such as Asia Pacific are maturing.

A few key reminders about this amazing continent:

  • The Continent of Africa
    • Second largest continent by area and population
    • 54 countries fully recognised by the United Nations
    • Significant natural resources
    • Africa’s complicated political situation, history of colonialism, and ongoing insurrections in many countries has largely kept multinational and institutional investors away from some countries
  • South Africa – probably the most developed country, driven by raw materials & mining industries (largest producer of gold / platinum / chromium in world).  Also, strong banking and agricultural industries.
  • Southern Africa – Generally the more developed market with strong mining industry
  • North Africa – Similar to the Middle East with oil reserves attracting oil related activities and industries.
  • Sub-Saharan – The lessor developed economies and often untouched by international investors where infrastructure type projects are key opportunities.

What are the patterns being seen in investing into Africa?

From working with our clients, Dixcart see the targeted countries are driven by the client’s specific sector of interest (see above) and have noted the following general trends:

  • Often the targeting of successful investments / projects in the more developed Southern African countries first; then,
  • Expanding into the lesser developed countries thereafter, once having gained an understanding and track record in order to provide confidence to investors (as more challenging to invest into the lesser developed countries but may ultimately produce greater returns).

What type of investments and investors are being attracted?

  • Start-ups are the most high-risk but often need the least investment.  Dixcart see PE Houses / Family Offices / HNWI’s often involved at this stage taking up equity as the early money secures the projects and gets the higher return.  PIFs are particularly being used at this stage.  Later, these initial investors have the choice to exit when larger sums of investment are needed to progress projects.  This is now at a time when the project is proven and less risky meaning institutional investors are interested and will pay a premium due to the risky stage now having been cleared.
  • ESG factorsare attracting the larger / institutional investors looking to increase their ESG activities and potentially offset an existing high carbon footprint.  Green programmes with a low return will often still be commercially acceptable to these types of investors.  The bespoke nature of PIF and corporate structures makes establishing a dedicated ESG strategy, unique to the investor pool, very straightforward.

Dixcart have also noted Investment Banks, particularly European Banks being used for leveraging of projects.

Why Structure through Guernsey?

Guernsey has a long standing and successful track record for servicing Private Equity and Family Office type structures either through the use of corporate vehicles (utilising the flexible Guernsey company law), Trust and Foundations or via the use of internationally recognised collective investment schemes such as the PIF which provides a lighter touch of regulation.

Guernsey provides security with experienced service providers in a mature, well-regulated, politically stable and recognised jurisdiction. 

Guernsey has a good track record for adherence to global tax harmonisation requirements and is a recognised jurisdiction with banks for setting up banking and lending facilities.

Conclusion

We are all aware of the huge amounts of capital available from international investors looking for investment opportunities and the African Continent, as one of the final frontiers left in the world provides attractive investment opportunities and returns.  These international investors need their capital invested through robust structures registered in an appropriate jurisdiction and Guernsey is one of the leading choices for such structuring.

Corporate structures are often favoured for single investors while the Guernsey PIF regime is attracting PE Houses and Fund Managers as an excellent vehicle for structuring through for their networks of professional and institutional investors.

Additional Information

For more information on Guernsey, and the investment structures for Africa (or indeed anywhere else in the World) and how Dixcart can help, please contact Steven de Jersey or Bruce Watterson at the Dixcart Guernsey office at advice.guernsey@dixcart.com and visit our website www.dixcart.com

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.

Dixcart Fund Administrators (Guernsey) Limited, Guernsey: Full Protector of Investor Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 68952.

How Can I Relocate to Switzerland and What Help is Available?

Non-Swiss nationals are allowed to stay in Switzerland as tourists, without registration, for up to three months. After three months, anyone planning to stay in Switzerland must obtain a work and/or residence permit, and formally register with the Swiss authorities.

How can I Become a Legal Swiss Resident?

There are two alternative routes to become a Swiss resident:

  • By working in Switzerland
  • By not working in Switzerland and/or by being retired
    • The ‘Normal System of Taxation’
    • The ‘Lump Sum System of Taxation’

Working in Switzerland

The acquisition of a Swiss work permit allows a non-Swiss national to become a Swiss resident.

There are three ways to be entitled to work in Switzerland:

  • Being hired by an existing Swiss company.
  • Forming a Swiss company and become a director or an employee of the company.
  • Investing in a Swiss company and become a director or an employee of the company.

When applying to work in Switzerland and/or for residence permits, different regulations apply to EU/EFTA nationals, compared to nationals of other countries.

  • It is a straightforward process for EU/EFTA citizens as they enjoy priority access to the labour market in Switzerland.
  • Non-EU/EFTA nationals can work in Switzerland as long as they are appropriately qualified, for example managers or specialists and/or with higher education qualifications.

An alternative route is for non-Swiss nationals to form a Swiss company and obtain a residence permit in Switzerland. Relevant individuals must be employed by the company that they establish in Switzerland.

Non-EU/EFTA businesses need to create jobs and business opportunities in Switzerland. The precise number and nature varies depending on the particular canton in which the business is located.

Normal System of Taxation – Not working in Switzerland

The process is relatively straightforward for EU/EFTA nationals wanting to live, but not work, in Switzerland and taxed via normal system of taxation.

Individuals must have sufficient financial resources to live in Switzerland and ensure that they will not become dependent on Swiss welfare and they also need to take have Swiss health and accident insurance

For Non-EU/EFTA nationals the process is less straightforward but is achievable, under the correct circumstances.

Lump Sum Taxation – Not working in Switzerland

A non-Swiss national, who does not work in Switzerland, can apply for Swiss residency under the system of ‘Lump Sum Taxation’.

  • The taxpayer’s lifestyle expenses are used as a tax base instead of his/her global income and wealth. There is no reporting of global earnings and assets.

Once the tax base has been determined and agreed with the tax authorities, it will be subject to the standard tax rate relevant in that particular canton.

Work activities outside Switzerland are permitted. Activities relating to the administration of private assets in Switzerland can also be undertaken.

Third country nationals (non-EU/EFTA), may be required to pay a higher lump-sum tax on the basis of “predominant cantonal interest”. This will depend on a number of factors and varies case by case.

How can an Individual Become a Swiss Citizen?

  • An EU or non-EU/EFTA national must have lived in Switzerland for at least 10 years, to be able to apply for a Swiss passport.
  • If an EU or non-EU/EFTA national is the spouse of a Swiss national, they need only to have lived in Switzerland for 5 years.

What Advice and Support can Dixcart in Switzerland Provide?

Dixcart in Switzerland is experienced in assisting individuals to move to this country having assisted:

  • Individuals working for Swiss companies
  • Individuals seeking to establish a Swiss company
  • Individuals based in or moving to Switzerland and working for foreign companies
  • Foreign companies looking to set up a Swiss branch or companies
  • Those seeking to take advantage of the Lump Sum System of Taxation

Professional support includes guidance regarding:

  • Choice of location to move to in Switzerland: canton and city.
  • Lump Sum Taxation: the criteria, how to apply for it, the taxation implications for the specific circumstances (dependent on the canton where the individual chooses to live). 
  • For employees, assistance regarding: salary calculations, social security calculations and payments, and payroll tax calculations and payments.
  • For those seeking to set up a business: bookkeeping, business plans, payroll, preparation of annual accounts, preparation of annual returns, Swiss insurance expertise, Swiss social security expertise, and value added tax reporting and payment (VAT).

Additional Information

If you would like additional information regarding moving to Switzerland and the assistance that Dixcart Switzerland can provide, please contact Christine Breitler at the Dixcart office in Switzerland: advice.switzerland@dixcart.com.

Ceasing to be UK Tax Resident – Don’t Get it Wrong!

Introduction

It is March 2022 and two people are sitting at the departure gate at Heathrow waiting for their (inevitably) delayed flight to the Bahamas. They start a conversation and talk about why they are flying to this Caribbean island. 

Person A, Mrs Sunseeker, explains to Person B, that she had lived in the UK for a long time as a resident “non-dom,” but that changes to the tax rules for longer term residents had meant that she had decided to leave the UK and cease being tax resident; “My friend told me I just had to spend fewer than 90 days each year in the UK.” she declares.

Fortunately for Mrs Sunseeker, Person B, Mrs Tax, is, by nominative determinism, a tax adviser and explains that the old ‘90 day’ rule does not apply anymore and suggests that she takes a look at the UK statutory residence test.

Background for Mrs Sunseeker

Mrs Sunseeker moved to the UK in the early 2000s, as a student.  After graduating, she was offered a job in the financial services industry. She has been very successful and accumulated significant personal wealth. 

In 2010, she inherited the shares of a large family business, back home in Dubai, which started to generate a regular dividend income of around £5 million a year which she has kept in her bank account in Dubai. As a UK remittance basis of taxation user, the Dubai dividends have not been taxed in the UK, as Mrs Sunseeker never remitted them into the UK. 

However, with the UK non-dom rules changing in 2017, remaining in the UK was going to be just too expensive.  She has therefore decided to move to a warm country.  Mrs Sunseeker is planning to carry on working for the same employer (taking advantage the fact that her firm realises she can work remotely) and, indeed, is likely to be working very hard on the days that she returns to the UK.

She is married. Her husband is British and does not want to spend as much time outside of the UK as his wife. His only source of income is in the UK and he still enjoys his work.  As he is going to stay, they will keep their home and Mrs Sunseeker will live there when she returns to visit him.

What is Mrs Sunseeker’s Tax Status and Why?

While waiting for the flight, Mrs Sunseeker takes a look at the residence test rules.  She realises that the first two parts of the test, the ‘Automatic Tests’ do not apply to her and reads on to the ‘Sufficient Ties’ section. Mrs Sunseeker has four such ties, or connections:

  • Spent more than 90 days in the UK in both of the previous two tax years;
  • Will have available accommodation in the UK;
  • Has a UK tax resident spouse and will continue to do so;
  • Will work in the UK for more than 40 days under the definition of the test.

What Will the Tax Impact Be?

As she has four ties, Mrs Sunseeker will be tax resident in the UK, for at least the first two years after she leaves, by spending just 16 days per annum in the UK, far lower than the 90 she had anticipated.

The next time she receives her large dividend, she would still be considered UK tax resident and will suffer UK income tax. It may be even worse, if she has not paid this tax on time she would receive a late payment penalty, which is quite likely because she no longer believed she was UK tax resident and she could be liable for penalties under the ‘offshore assets’ rules too.

The problem would become further compounded were Mrs Sunseeker to sell her shares in the family business in Dubai for a large gain, while she believed she was not UK resident.

Other Considerations

Please note for completeness, that the UK ‘split year rules’ are not being considered, nor are the tax implications of Mrs Sunseeker continuing to receive a salary for work she undertakes when in the UK. Dixcart, would of course advise on these, where relevant.  The Bahamas does not have a double tax treaty with the UK, and there is therefore no tie breaker clause to consider in this scenario either.

So, What Could Mrs Sunseeker Do?

Can you believe it, the flight is still delayed!

Mrs Sunseeker picks up her phone and calls Mr Sunseeker. Whilst he loves his job, he now understands that there will be a high tax cost if his wife does not properly exit UK tax residence.  He packs his things and heads to the airport. While on his way, he calls his employer and resigns, and then calls an estate agent to list the home for immediate rental.

The repercussions of the two actions above, would be to reduce the number of UK ties that Mrs Sunseeker has, from four to two:

  • 90 days in both of the previous two tax years; and
  • Work tie (assuming she still works, when back in the UK).

Now she would be able to spend up to 90 days in the UK per annum and lose her UK tax residence status.

Very lucky!

Whilst everyone else on the flight was cursing the delay, Mrs Sunseeker had struck lucky.  However, had Mr and Mrs Sunseeker started to plan earlier than at the airport departure lounge, there would have been more options to consider around their employment situation and their home status, and they might have avoided having to take such extreme steps.

How Can Dixcart Help?

Dixcart’steam of lawyers, accountants, immigration and tax professionals would have assisted Mr and Mrs Sunseeker with:

  • Pre-departure tax planning;
  • Ongoing tax planning, to ensure that UK tax residence is not accidentally acquired again in the future;
  • Employment law advice for both individuals in relation to their ongoing employment contracts, should they wish to continue to work, as well as related UK tax advice regarding the income being earned;
  • Application for Indefinite Leave to Remain before they leave the UK, so they can be sure that they can return in the future.

Additional Information

If you require additional information on this topic, please contact your usual Dixcart adviser or speak to Paul Webb or Peter Robertson in the UK office: advice.uk@dixcart.com.

Dixcart UK, is a combined accounting, legal, tax and immigration firm.  We are well placed to provide these services to international groups and families with members in the UK. The combined expertise that we provide from one building, means that we work efficiently and coordinate a variety of professional advisers, which is key for families and businesses with cross-border activities.

By working as one professional team, the information we obtain from providing a service, can be shared appropriately with other members of the team, so that you do not need to have the same conversation twice!  We are ideally placed to assist in situations as detailed in the case study above. We can provide cost effective professional services for companies and individuals and also offer in-house expertise to provide assistance with more complex legal and tax matters.

The Benefits Portugal Offers Holding and Operating Companies

With sources reporting almost €3billion of foreign investment in Portugal for 2021, it goes without saying there is significant interest in this Western European country attracting all sorts of companies, from large tech companies to restaurateurs showcasing their cooking talent for our taste buds to indulge!

In 2021 Lisbon welcomed more than 40,000 attendees at the Web Summit, as host of this highly esteemed annual technology conference – it is no surprise that Portugal has been labelled the new European Tech hub. The tech industry, like many other fields, has seen the powerful potential Portugal has to offer, and we have seen large companies like Amazon and Google take advantage of this by setting up companies in Portugal.

In addition, Portugal has also become a large tourist attraction with many coming to experience the food and wine that Portugal is very well known for.

What makes Portugal a great place to incorporate a company?

In addition to the increased international commercial interest, Portugal has an extensive network of double taxation treaties with various other jurisdictions around the world (with more than 70 agreements in place). This enables cooperation regarding taxation between respective jurisdictions and the smooth enforcement of respective tax laws.

Portugal is also part of the European Union and therefore has free access to the European market.

English is widely spoken in Portugal making it seamless for business to be conducted with local employees or partners and even more importantly, making it easy to perform international business activities.

Another beneficial aspect relates to inbound and outbound distributions made. Under the participation exemption; dividends and capital gains may be exempt from taxes provided certain criteria are met.

The criteria is summarised as follows:

  • Hold the shares for a consecutive period of one year;
  • Hold directly/indirectly 10% of the shares/voting rights;
  • Subsidiary is not resident in a Portugal black-listed tax jurisdiction; and
  • The subsidiary is not exempt from corporate income tax or has a tax rate of at least 60% of the standard Portuguese corporate income tax rate (12.6% calculated as 21%×60%).

Portugal, undoubtedly, ticks many of the key characteristics as an ideal location for a holding or operating company, to be established and maintained.

What type of company can be formed in Portugal?

Portugal has three types of company that can be incorporated, and it is important to understand the differences, as the substance criteria vary widely, as well as the implications in relation to corporate income tax.

Companies may be incorporated through; Portugal mainland, the island of Madeira, or the International Business Centre of Madeira (also based on the island of Madeira).

What corporate income tax rates are applicable for these types of company?

The corporate income tax rates are summarised below for the three types of company:

 Portuguese Mainland CompanyMadeira CompanyInternational Business Centre of Madeira Company (for international activity)
First €25,000 of taxable income17%11.9%5%
Taxable income above €25,00021%14.7%5%

What substance criteria are applicable?

Although Madeira and Portugal do not have specific substance requirements to comply with, to take advantage of its double taxation treaty network, as mentioned above, substance does need to be maintained.

Detailed below are some examples of how this may be achieved:

  • Maintaining an open and active bank account;
  • A registered office address and/or premises for the exclusive use of the company;
  • A qualified director and/or permanent employee;
  • Making important business decisions in Portugal and evidencing these through minutes of board meetings; and/or
  • Ensuring sufficient commercial activity occurs in Portugal for the related business.

Specific substance criteria required for the International Business of Madeira (IBCM) are as follows:

  1. Following the incorporation of the company:
    1. Within the first 6 months of activity, the IBCM company must hire at least, one worker, and undertake a minimum investment of €75,000 in fixed assets, within the first 2 years of activity. OR;
    1. If it hires six employees, during the first 6 months of activity, it will be exempt from undertaking the minimum investment of €75,000.
  2. On an ongoing basis, the company must have at least one full time employee on its payroll, paying Portuguese personal income tax and social security. This employee can be the Director or a Board Member of the IBCM company.

Additional information and assistance from Dixcart

Dixcart can assist you in advising how additional substance may be maintained as well as providing advice on how a double taxation agreement for the respective jurisdiction is applicable in Portugal.

In addition, Dixcart has extensive experience in the incorporation of companies and we look forward to working with you as a client in the future.

Please reach out to Dixcart Portugal if you have any questions: advice.portugal@dixcart.com.

Fundamental Changes to UK Immigration Rules – April 2022

Background

As of 6th April 2022  a number of new UK immigration rules came into effect.

The Tier 1 (investor) visa had already been closed to new applicants on 17 February 2022.

A summary of the key changes is detailed below.

Overseas Representatives Business Category

The Overseas Representative Businessperson category, commonly known as Sole Representative will no longer exist. The Overseas Media Person category will remain unaffected. Those currently holding permission under the Sole Representative category will be unaffected.

Global Business Mobility Routes

The Intra-Company Transfer routes have been revamped and will be known as the Global Business Mobility routes. Those under this category will not be eligible for permanent residence.

The new Global Business Mobility route creates 5 sub-categories as set out below. It means that a sponsor licence holder will need to hold licences under the relevant sub-categories to be able to be a sponsor:

  1. The Senior or Specialist Worker which replaces the Intra-Company route and is applicable to senior managers or specialist employees who are being assigned to a UK linked entity for a temporary assignment.
  2. Graduate Trainee which replaces the Graduate Trainee Intra-Company route and is designed for those on a dedicated Graduate programme outside of the UK, and who are required to be assigned to the UK for part of the programme.
  3. UK Expansion Worker which is for senior managers or specialist workers being assigned temporarily to the UK to establish an UK entity or to undertake work related to a business expansion to the UK. The applicant would need to meet the points criteria (60 points) and be granted a Certificate of Sponsorship. This will mean that the employer must obtain a sponsor licence by requesting a provisional rating, with the applicant holding the role of authorising officer. The maximum stay allowed would be 5 years in any 6-year period.
  4. Service Supplier which is for overseas workers who are undertaking temporary work assignments in the UK, where the worker is either a contractual service supplier employee or a self-employed independent professional. The applicant would need to meet the points criteria (40 points) and be granted a Certificate of Sponsorship. There are no requirements to meet the salary point requirements. The maximum stay allowed would be 5 years in any 6-year period.
  5. Secondment Worker which is for overseas workers who are undertaking temporary work assignments, where the assignment is part of a high value contract or investment by their overseas employer. The applicant would need to meet the points criteria (40 points) and be granted a Certificate of Sponsorship. There are no requirements to meet the salary point requirements, but the contract must have been registered with the Home Office. The maximum stay allowed would be 5 years in any 6-year period.

Introduction of the High Potential Individual (HPI) and Scale-up Routes

The HPI introduces an elite points-based route to attract the brightest and best to the UK to maintain the UK’s status as a leading international hub for emerging technologies. Applicants must have a bachelor’s or postgraduate degree from one of the Global Universities, listed by the Home Office, within 5 years of the date of application.

The Scale-up route introduces an elite points-based route to attract the brightest and best to the UK, to maintain our status as a leading international hub for emerging technologies. A job offer must be received from an authorised UK scale-up company. The scale-up company would need to demonstrate that they have an annualised growth of at least 20% for the previous 3-year period in terms of turnover or staffing, as well as having a minimum of 10 employees at the start of the 3-year period.

Additional Changes

Changes have been made to the rules relating to Settlement based on Family Life and Private Life, to make the requirements simpler to understand.

Policy Guidance

A further update will be provided once the policy guidance has been released.

Further Information and Advice

If any of the changes above affect you and/or you need assistance regarding immigration to the UK, as an individual or as an employer, please speak to Peter Robertson at: advice.uk@dixcart.com.

Nevis Trust Structuring – Benefits and Protections

Nevis has long been recognised as a jurisdiction with some of the most modern and comprehensive asset protection trust legislation in the world.

Within Nevis there are two options for the establishment of trusts. These can either be created under the general laws of trusts, applicable internationally, which are referred to as Common Law Trusts, or created as Nevis Asset Protection Trusts registered under the Nevis International Exempt Trust Ordinance. The latter benefits from some additional provisions, detailed below, which may be of value in helping achieve the ultimate objectives of the Settlor in creating a Trust.

What is a Trust?

A Trust is a legal arrangement whereby an individual known as a Settlor transfers the legal ownership of assets to the Trustees to be held in a Trust for the benefit of defined Beneficiaries. The details of the arrangement are contained within a Trust Deed, which is the constitutional document of the Trust. Trusts are not incorporated and therefore do not benefit from the features of a legal entity, such as a separate legal personality and limited liability e.g. it cannot make contracts or create charges in its own name. Instead, the legal title of the assets is transferred to the Trustees, who owe specific duties to the Beneficiaries.

Parties

A typical Trust consists of the following parties:

Registered Nevis Asset Protection Trusts – Benefits and Protections

Under the Nevis International Exempt Trust (Amendment) Ordinance, a Trust can be settled and registered in Nevis which provides a number of benefits and protections to the Settlor and Beneficiaries of the Trust.

Some of these advantages include:

  • Dynasty Trust – The Trust can have an unlimited duration
  • Retained powers – Certain powers can be retained by the Settlor
  • Confidentiality – The only information which is required to be registered with the authorities is; the trust name, the registered address and name of the Trustee and a signed declaration by the Trustee. This information is kept confidential
  • Creditor claims – any potential creditor must place a bond of ECD270,000 / USD100,000 before bringing any action or proceeding against trust property in a Nevis Trust, and the burden of proof is placed squarely upon the creditor, who must establish their claim “beyond a reasonable doubt”
  • Commencement of Proceedings – No action or proceeding to set aside the settlement, or by any person claiming to have had an interest in property before it was settled into a Trust, will be entertained by the Court, if the action or proceeding commences two years after the settlement of the Trust or the settlement of the property
  • Forced Heirship – any forced heirship rights in the jurisdiction of the Settlor or Beneficiaries do not overrule the provisions of a Nevis Trust
  • Validity – the Trust is valid and enforceable, regardless of whether it is invalid in the Settlor’s domicile or jurisdiction of residence
  • Foreign judgements – Any foreign judgements are not enforceable in Nevis
  • Taxation – All trust assets and any income deriving thereof are totally exempt from; estate, corporation, gift, income, inheritance, withholding, succession and stamp taxes in Nevis

A Registered Nevis Trust – Details Needing to be Submitted

A Registered Trust is one where the Trustees must register the trust details with the authorities.

In Nevis this registration includes detailing:

a) the trust name

b) the registered address of the trust

c) the name of the Trustee; and

d) a signed declaration stating that the trust complies with the Ordinance and is an International Trust.

This is all the detail which currently needs to be filed and the provision of this limited information ensures that the confidentiality and anonymity of the client is still able to be maintained.

Criteria to Qualify as a Nevis International Exempt Trust

In order to be classified as a Nevis International Exempt Trust, the Trust must fulfil the following requirements:

  • At least one of the Trustees must be a Trust Company eg Dixcart Management Nevis Limited, licensed by the Government to undertake trust business in Nevis, or a corporation incorporated under the Nevis Business Corporation Ordinance (commonly known in other jurisdictions as an IBC); and
  • The Settlor and Beneficiaries must at all times be non-residents of Nevis; and
  • The trust property must not include any land in the Federation of St. Kitts and Nevis.

Common Law Trusts

Common Law Trusts have been used for many hundreds of years in Common Law countries deriving their basis of law from the United Kingdom. They are created when an individual (the Settlor) transfers assets to a Trustee to control and manage the assets on behalf of specified individuals (the Beneficiaries). The Trust is a legal arrangement whereby the assets of the Trust belong legally to the Trustees to hold for the benefit of the Beneficiaries.

As long as the Trust is established with a Nevis Trustee and the Settlor or Beneficiaries are not Nevis residents, then no taxation will arise on the income or gains within the Trust. As no income is to be subject to tax in the island, there is no need to register the Trust with any authorities or to file any details of the activities within the Trust.

A Common Law Trust appointing a Nevis corporation as Trustee and which does not seek registration under the Nevis International Exempt Trust Ordinance does not need to file details of any aspects of the Trust with the authorities in Nevis.

Additional Information

In conclusion, Common Law Trusts can be established in Nevis without any registration of detail and are a well-known and dependable vehicle for asset management and family control.

Registered Nevis International Exempt Trusts can secure additional advantages for the protection of assets. Coupled with the Nevis LLC to hold the underlying assets of the Trust, these two entities together make a powerful defence for your assets.

The Nevis Registered Trust Ordinance is considered to be one of the most appropriately framed forms of trust legislation in the world. With Dixcart’s experience and management on the island, you and your clients can be reassured that the placement of assets in any such Trust will be managed and maintained to exacting professional standards.

If you require any additional information or wish to discuss your structuring needs further, please contact Beth Le Cheminant at advice@nevis.com.

Whilst this note is intended to provide information regarding Nevis Trust structures and examples of how these can be used, it is not intended to form any sort of legal or tax advice. We strongly recommend that any individual considering setting up a wealth planning structure seek independent legal and tax advice before doing so.

Malta’s Simplified Solution to Going Green

Malta is a popular choice for companies and new businesses as it is a reputable EU jurisdiction and ‘sunshine’ island, with an ‘outdoor’ lifestyle in a clean and safe ecological environment.

The sustainability movement exemplifies the positive impact that individuals can have on their environment. Dixcart aim to contribute to this cause by supporting the island’s foremost organisations which are working towards preserving our environment.

In this article, we consider eco-friendly projects and the opportunities that are available in Malta. 

  1. Corporate Social Responsibility (CSR) projects

If you are looking for a way to enhance your company’s CSR profile, we can provide an opportunity for your team to make a positive change that will last much longer than their trip to Malta. Set up a company in Malta, with Dixcart’s assistance, and drive research and development to focus on eco-friendly projects.

Specific financial support is available to reduce single-use plastic usage at events taking place in Malta. Over the past few years, businesses in Malta have done much to reduce the amount of single-use plastic at events. Biodegradable alternatives to plastic cutlery, plates, and straws, for outdoor events, is in demand. 

Currently there is a financial aid scheme, that offers shops in Malta up to €20,000 to transition to retailing plastic-free and reusable packaging alternatives. 

This eco-friendly retail investment grant will cover up to 50% of the expenses incurred in moving away from single-use packaging to a more sustainable method of consumption.

At the beginning of 2022, the Maltese Government stopped the importation of plastic cotton bud sticks, cutlery, plates, straws, beverage stirrers, balloon sticks, and polystyrene containers and cups.

The project also aims to incorporate innovative and sustainable technology, such as solar paving, smart benches, and smart solar bins.

  • Encourage enterprises to invest in sustainable and digitalised operations

The demand for greener travel will continue to increase in the future, and so will the expectations of ‘green’ travellers, who will demand more than the traditional water and energy-saving measures. These developments will put destinations and travel companies under increased scrutiny by discerning holidaymakers, and destinations and service providers who demonstrate a tangible commitment to the natural environment will become even more attractive.

To further encourage enterprises to invest, businesses in Malta can benefit from up to €70,000 to implement projects which lead to more sustainable and digital processes.

The ‘Smart & Sustainable Scheme’, managed by Malta Enterprise, incentivises more competitiveness and better use of resources, enhancing the economic activity of these businesses.

Through the Smart & Sustainable Scheme, businesses are entitled to receive 50% of the total eligible costs, up to a maximum €50,000 for each relevant project.

Businesses fulfilling the criteria for this scheme may also benefit from a tax credit of up to €20,000 for each product which satisfies at least two of the three conditions, as detailed below:

  1. New investment or an expansion in Gozo.
  2. A project that an enterprise will implement in a start-up phase.
  3. A reduction in carbon usage by the enterprise, as determined through an independent auditor.

If a project satisfies one of the above criterion, the tax credit will be a maximum €10,000.

        3. Water quality and Blue Flags awarded local beaches

The quality of water is also an essential aspect of the sustainability of tourism. Following the investment in the purification process of sewage water at various outfall treatment centres, the quality of sea water around the Maltese Islands has improved. It is now considered one of the best in Europe. This is also being reinforced by the increase in the number of Blue Flags awarded to local beaches.

€150 million funding, the biggest ever, for a project in Malta, is enabling the Water Services Corporation to produce more water, recycle used water, and improve energy efficiency.

Desalination plants are being upgraded, and more seawater can be processed. This means that far less water will need to be taken out of ground-based sources – about four billion fewer litres each year. In Gozo, a plant using advanced ‘reverse osmosis’ technology boosted daily water production by nine million litres a day.

These initiatives are known collectively as the ‘Net Zero Impact Utility’ project, and they are cutting edge in terms of sustainable water production usage across Malta and Gozo. EU investment in this project has helped make this “holistic” and sustainable approach possible.

Malta Tourism Authority’s ‘Eco-certification Scheme’ creates more awareness and promotes sound environmental practices amongst hotel operators and other providers of tourist accommodation. This voluntary national scheme has now expanded from initially being just hotels to include other forms of accommodation. As a result, it is credited with raising standards in environmental practices within this highly important sector.

The Future of the Green Economy in Malta

In 2021, the European Commission unveiled the ‘New European Bauhaus’ initiative, an environmental, economic, and cultural project aimed to design ‘future ways of living’ in a sustainable manner. The new project is about how we live better together with the environment, after the pandemic, while respecting the planet and protecting our environment. In addition, it is about empowering those who have potential solutions to the climate crisis.

The Malta Government plays an active role in deciding how financial resources are allocated between competing uses, at present and in the future. Infrastructure development is one such future-focused investment, including plans to invest in Malta’s industrial zones and estates. There are also schemes to support start-ups through venture capital. The support and strategies aimed at a green transition feed into and support a greener economy.

Your eco-friendly start-up or extending an existing business in Malta, can be part of these exciting changes and a ‘new page’ in the NextGen post-pandemic economy.

Additional Information 

If you would like further information regarding eco-friendly projects for research and development and the opportunities available through Malta, please speak to Jonathan Vassallo: advice.malta@dixcart.com at the Dixcart office in Malta, or to your usual Dixcart contact.